Union Budget 2023-24
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India: Preferred Destination for Foreign Investments

Foreign direct investment (FDI) inflows to India have been increasing year after year. In FY22, gross FDI inflows totaled $ 83.6 billion, up from $ 82 billion the previous year. In FY20, it was $ 74.4 billion. The services and industrial sectors received the majority of FDI in FY22, according to the RBI's monthly report. 

India's total FDI is estimated to be over $ 570 billion. FDI investments usually consider a country's long-term potential and are rarely revoked. The high level of FDI suggests that India is a promising investment destination. IT, finance, FMCG, auto, medicines, telecom, and other emerging sectors like startups, critical technologies have immense potential in the growing Indian market. Such investments are often made by companies looking to form joint ventures or acquire shares in domestic businesses. They could be venture capital funds that help local entrepreneurs. 

In 2021-22, FDI equity inflows into manufacturing sectors surged by 76% ($ 21.34 billion) over 2020-21. ($ 12.09 billion). Computer software and hardware drew the most inflows of all sectors. The services sector and the motor industry came next. In the context of the cooperative sector, a recent proposal to allow foreign direct investment (FDI), particularly in Primary Agricultural Cooperative Societies (PACS) with an aim to enhance infrastructure is also being pondered over. Consistent and high-quality FDI can help states expand their cooperative infrastructure, particularly the cold chain network, which is critical for storing, transporting, and preserving perishables, including fruits, vegetables, and dairy goods.

Over two-fifths of the 1,200 global business leaders polled in a survey in the United States, the United Kingdom, Japan, and Singapore said they plan to invest in India again or for the first time. Since the US Federal Reserve started cutting down its purchases of treasury bonds and mortgage-backed securities to boost the economy during the pandemic, FPIs have begun withdrawing. The Reserve Bank of India (RBI) liquidated dollars from reserves to slow the rupee's devaluation and reduce foreign exchange volatility, bringing reserves down to $ 596 billion at the end of May from a high of $ 642.453 billion on September 3 last year.

Several reforms by the central and state government authorities have been taken in the sectors of coal mining, contract manufacturing, digital media, single brand retail trading, civil aviation, defence, insurance, and telecommunications, among others. This has resulted in progressive implications. For instance, during the period 2021-2022, Karnataka received 53 per cent of FDI equity inflows in the domain of "Computer Software and Hardware," followed by Delhi (17 per cent) and Maharashtra (17 per cent).

The government analyses the FDI policy on a regular basis and makes significant changes from time to time to ensure that India remains an attractive and investor-friendly environment. Most sectors are open to FDI under the automatic route, and the government has developed a liberal and transparent FDI policy. Since 2014, FDI inflows have accelerated, with FDI increasing extensively since then. Singapore, the United States, and Mauritius are among the top FDI equity inflow countries. 

Research highlights that the country is anticipated to attract a $ 100 billion FDI inflow in 2022-23, owing to several distinct ground level economic reforms and significant ease of doing business in recent years. It has further been suggested that such investment will be instrumental in aligning with the central government's strategy to strengthen the economic growth and achieve the target of becoming a $ 5 trillion economy in the coming years. 

The need of the hour for India is to complement its record high FDI levels with focused efforts to accelerate infrastructure investments, inclusion of more sectors under the Production Linked Incentive scheme, increase in public investments in agriculture sector, addressing the high commodity prices and shortages of raw materials to firmly position itself as a lucrative investment destination.
 

This has been co-authored by Srijata Deb and Devika Chawla.